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Friday, October 10, 2008

ICELAND IN THE EYE OF THE STORM

Hundreds of Icelanders vented their fury Friday at central bank chief David Oddsson, the man blamed for the country's financial collapse, as the government appeared unable to ward off national bankruptcy.

We ought to be seeing more of this on our street.

Anyway, back to Iceland. Anger over the situation there has mounted in recent days against Oddsson, who served as the country's prime minister from 1991 until 2004 and who orchestrated the liberalisation of the financial sector in the 1990s.

Until a few days ago Oddsson had repeatedly told Icelanders the situation was under control. It, of course was not. On Monday, the government announced sweeping emergency laws enabling it to take control of the country's foundering banks.

It has since then nationalised the three biggest banks and abandoned efforts to support the currency which is in free fall.

"He (Oddson) didn't do his work. He made the wrong decisions and has made inappropriate comments. We demand his resignation," one of the protesters, 23-year-old political science student Vera Knutsdottir, told AFP.

Iceland has seen its three biggest banks failed and its currency, the krona, collapsed.

In the midst of all this a war of words (and more) has erupted between Iceland and Britain. British customers' savings in Icelandic bank accounts have been frozen by Iceland's government.

British customers' money in Icesave, a British subsidiary of the nationalised bank Landsbanki, have been unable to access their money since Tuesday.

While Iceland may seem a fringe European country, its banks had recently spawned a range of internet banks which have sucked in billions in UK pension funds.

According to media reports, some 300,000 people in Britain have savings in Icesave, estimated at 5.1 billion euros (6.86 billion dollars). Major withdrawls would pretty much send Iceland down the tube.

To make matters worse, Iceland's financial hurricane seems to also be sucking in 108 of Britain's local administrative councils, which deposited a total of 799.0 million pounds ($1.4 billion) in Icelandic banks. As they are not classified as retail clients, getting their money back will be far more difficult.

British Prime Minister Gordon Brown, who has called Iceland's stance "completely unacceptable," vowed to do everything possible to recover money caught up in the island nation's financial meltdown.

"They have got to take responsibility for this situation... We've asked the Icelandic authorities to return money that should have been left in Britain," he said.

"I can assure people we are doing everything in our power for this money to be returned," he added.

Meanwhile, Icelandic Prime Minister, Gier Haarde, has expressed his annoyance that the UK used anti-terrorism legislation to seize assets in Britain of the one of the Icelandic banks.

Forbes reports, the cold war between Britain and Iceland over the stranded clients of Icesave left the British currency crippled Friday afternoon, as worries persisted over Britain's exposure to Iceland's economic turmoil.

It's clear that Iceland poses an idiosyncratic risk to the British economy and banking system," said Ned Rumpeltin, a currency strategist at Morgan Stanley. "That is being meted out on sterling."

Also, unhappy with Iceland is the Netherlands.

The Dutch Minister of Finance Wouter Bos said in an interview that the Icelandic state will be taken to court if it does not honor its obligations towards the roughly 120,000 Dutch accounts holder in Landsbanki Bank’s online savings bank Icesave.

“If it turns out that false information was given out then we will clearly take legal action against Icelandic authorities,” Bos told Elsevier magazine, according to Morgunbladid.

Jon Thorisson, CEO of VBS, an Icelandic investment bank, said a $4 billion euro loan could "help Iceland a lot," but admitted that he was surprised the source might be Russia.

"We have been calling for aid from neighboring countries and have been turned down," Thorisson said.

"This is looking like the beginning of relations between Russia and Iceland."

Icelandic Prime Minister Geir Haarde said Tuesday that in times of crisis "one has to look for new friends," The Associated Press reported.

RIA Novosti writes: "The fate of Iceland has until recently not concerned Russia one bit. Now only a lazy person is not discussing the incredible sum the "island of stability" is going to inject into the economy of a sinking island of geysers."

Russia's own banks have been weathering liquidity problems, with the Central Bank stepping in to offer nearly $190 billion in funding for the financial sector, but it looks like the country is still in a good enough position to help Iceland cover some of the costs of bailing out its own banks.

"Russia is not in the same situation as Iceland. Their banks are extremely leveraged," said Vladimir Krendel, an analyst from the Institute of Financial Research in Moscow.

"In Russia, we are comparatively pretty stable. We have not been involved in subprime banking. It used to be a drawback, but now it's our advantage."

Krendel said that providing financial backing in Europe would also be of "great political advantage."

Strange bedfellows doth a global crisis of capital create.

The following is from Reuters International.

Angry Icelanders demand central bank head resign

REYKJAVIK, Oct 10 (Reuters) - Angry Icelanders protested outside the central bank on Friday over the way the economy has been run and called on the bank's governor to resign.

Central Bank Governor David Oddsson, a former prime minister and close ally of the current premier, has faced calls to resign from at least one prominent Icelandic politician, who said his views were shared by other lawmakers.

The government has been forced to take control of three of the country's top banks, seek financial assistance from Russia and abandon attempts to defend its currency as a financial crisis brought the economy to the brink of collapse.

The crisis has shocked and confused the island of 300,000 in the north Atlantic.

Two women in the throng held a sign reading "Stay Calm While We Rob You".

Snaebjorn Sigurdsson, 33, another demonstrator, said Oddsson should leave. "He's the former prime minister of Iceland. He let loose all the banks. He's been controlling things too long."

On Thursday, a senior politician in one of the parties in the ruling coalition called for all the directors of the central bank to be fired.

"I believe that the central bank directors have made repeated mistakes and should go," said Agust Olafur Agustsson, deputy chairman of the Social Democratic Alliance.

"As long as the top management of the bank does not have credibility, the bank will not either."

Agustsson, speaking on state radio, criticised the central bank for not securing foreign currency reserves while it was possible and for potentially jeopardising a loan from Russia by prematurely stating it had been agreed.